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Protecting Ag as the Trade Wars Rage

Agriculture trade issues are still on the table, according to U.S. Senator Charles Grassley (R-IA). He expects the next six months to be “very fluid.”

In this week’s Capitol Hill Report, Grassley explained it will take that long for proposed tariffs to kick in, and that long to get a true picture of how those tariffs, and the resulting backlash, will affect agriculture. “President Trump is approaching this like he did as a businessman,” said Grassley. “This is how he operates. He negotiates by pushing things to the brink.”

Will that brinkmanship work? That’s a good question, according to Grassley. “If all goes well, we have nothing to worry about. If not, there is plenty to worry about.”

On the surface is an impending trade war with the potential for China-imposed tariffs on pork, soybeans, sorghum, corn, beef, and other products. Under the surface is the U.S. effort to force Beijing into opening its markets and curtail China’s subsidies to cutting-edge industries like robotics, aerospace, and artificial intelligence.

Grassley has engaged in talks with the president, informing him of the dire consequences of retaliation against imposed tariffs. Those talks are ongoing, and Grassley says there may be some light at the end of the tunnel.

Automobiles get a break

China promised earlier this month to cut China’s auto tariffs. President Trump had complained China was hampering trade by charging a 25% import duty on most cars while the U.S. charges less than 3%.

Further concessions for trading automobiles also appear to be on the horizon. Global automakers such as General Motors Co. and Volkswagen AG are currently allowed to own no more than 50% of joint ventures with a Chinese partner and can’t have more than two separate ventures. China has indicated it will eliminate those restrictions for electric vehicles, with a similar repeal in 2020 for commercial vehicles and in 2022 for passenger vehicles.

Insiders say the latest shift is part of China’s effort to accelerate electric vehicle development; a key component of the country’s industrial plans. In 2009, China passed the U.S. as the world leader in number of vehicles sold. Last year, sales of minivans, sedans, and SUVs totaled 24.8 million vehicles. Around 55% of those were U.S., European, Japanese, and Korean brands.

Help on the way?

To protect farmers, should the trade war escalate, the Trump administration has asked the U.S. Department of Agriculture (USDA) to step in with a safety net. One option is to use the Commodity Credit Corporation, which could provide up to $30 billion to help shore up American farmers by buying their crops.

But there is a downside to that plan. Not only will it likely be time-consuming and costly, adding to the budget deficit, but it essentially amounts to a farm subsidy. That’s not the direction U.S. farmers want to take.

“Iowa farmers aren’t looking for another subsidy program; rather they want new and improved market access,” said U.S. Senator Joni Ernst (R-IA). Trade-related threats have already hurt farmers’ bottom lines through declining prices on futures contracts.

Back to the trade agreements

Grassley said there is a good chance the U.S. may strike a favorable position to renegotiate NAFTA, and Trump has indicated he may be willing to reverse his stance on the Trans-Pacific Partnership (TPP).

President Trump pulled the U.S. out of TPP shortly after he took office. The move led the 11 remaining countries to negotiate a new deal without the U.S. In recent weeks, he has asked his trade and economic advisers to look at the possibility of rejoining the agreement.

“The president is interested in negotiating better results for the U.S.,” said Grassley. Farmers would benefit from increased market access if such a deal is possible.

Grassley said there is a possibility the U.S. may be able to negotiate a separate bilateral trade agreement with just Japan, one that could mean three or four times the trade dollars that all the other 10 countries combined bring to the table. “That would more than compensate for the TPP,” said Grassley.

Protecting food safety

Grassley and his ag-state cohorts are also working to preserve the safety of the U.S. food system by questioning a move to allow Marfrig Global Foods SA of Brazil to purchase Missouri-based National Beef Packing Company, the fourth-largest processor of U.S. beef. The purchase plan comes on the heels of Brazil’s food safety scandal that caused the U.S. to halt imports of fresh beef from Brazil. Some of the questionable imports came from Marfrig.

The senators involved have asked the Treasury Department to include the USDA and the Food and Drug Administration (FDA) in Committee on Foreign Investment in the United States (CFIUS) reviews of foreign acquisitions of major U.S. agriculture assets. As an interagency committee, CFIUS reviews transactions that could result in control of a U.S. business by a foreign entity, and thus, the effect that control could have on national security.

The USDA and FDA do not have formal representation on CFIUS despite the growing trend of outside investment in the U.S. food system.

Grassley, a member of the Senate Agriculture Committee, joined Agriculture Committee Ranking Member Debbie Stabenow (D-MI) last year in introducing the Food Security is National Security Act of 2017, a measure that would give agriculture and food officials permanent participation in CFIUS and its review process.

“The security, safety, and resiliency of our food system is integral to the overall security of our nation,” the senators wrote. “In light of recent acquisitions of U.S. food and agriculture companies such as Smithfield by Shuanghui in 2013 and the acquisition of Syngenta by ChemChina in 2016, it has become increasingly clear that growing foreign investment in U.S. agriculture requires a thorough review process to safeguard the American food system.”

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